In a letter to Congress, Lew urged passage of bankruptcy legislation for the Caribbean island weighed down by $70 billion in debt and the effects of a decade of recession.

"Although there are many ways this crisis could escalate further, it is clear that Puerto Rico is already in the midst of an economic collapse," Lew said in the letter, addressed to Speaker of the House of Representatives Paul Ryan.

"In order to assist the 3.5 million Americans living in Puerto Rico, Congress must pass legislation for the president to sign into law before the end of March."

He noted that Puerto Rico's government is now shifting funds away from one creditor to pay another, and has stopped payments altogether on some of its bonds.

After it missed $37 million in payments early this month, and pulled another $163 million from escrow for some bonds to service government debt, creditors have filed suit, complicating the situation.